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Saturday, November 14, 2009

Midsize Public Sector Banks Survive Downturn

2008-09 and the ongoing 2009-10 have not been easy years for the country’s mid to small sized public sector banks. Yet they have shown remarkable resilience in fighting back the downturn with all available tools at their disposal.

Good examples of this trend have been Bank of India and Central Bank of India on the big side, and Indian Overseas Bank and UCO Bank on the smaller side.

These tools include profit from treasury operations, profit from wholesale banking, cutting cost of deposits, and managing NPA levels.

Using these tools, as well as growth in their core banking business, Mumbai headquartered Central Bank of India’s net profit rose from Rs. 96.15 crore a year ago to Rs. 313.93 crore. The bank could better its treasury operations, as well as its wholesale and retail banking operations.

At another Mumbai headquartered major, Bank of India, the core metric of net interest income (NII) increased by 3.37% to Rs. 1409 crore. But BoI opted for higher provisioning for its NPAs this quarter, which pulled down its net. But since then, the new RBI directive of 70% Provision Coverage Ratio (PCR) has made the bank look wise among its peers.

Chennai based Indian Overseas Bank (IOB) could have posted an operating profit of Rs. 554.6 crore, but the exceptional case of the absorption of the loss making Shree Suvarna Sahakari Bank dragged down its net profit to Rs. 176.04 crore. IOB was handpicked by the Government earlier to save SSSB.

However, Kolkata based UCO Bank had a smoother sail this quarter. Net profit was up by 38.4% on strong growth in interest as well as treasury income. The bank is rapidly shedding its high cost bulk deposits, and managing its NPA levels quite well. Total income grew over 19%, while operating profit was up by around 50%. Now the bank is working hard to increase the competitive metric of net interest margin (NIM) to 2.15% from the current 1.88%.